LOGISTICS & SUPPLY CHAIN MANAGEMENT (CASE: HP DESKJET SUPPLY CHAIN)

Hewlett Packard Company Deskjet Printer Supply Chain Camelia Indah Murniwati Jejen Nugraha Muhammad Yuriansyah Putra Nasrul Nabil Sangadji

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LOGISTIC & SUPPLY CHAIN MANAGEMENT | MO 141 | 14 SEPTEMBER 2015

About HP • Hewlett Packard Company was founded in 1939 by William Hewlett and

David Packard. • Headquarters in Palo Alto, California.

• In 1990, HP had over 50 operations worldwide, with revenues of $13.2 billion and net income $739 million.

DeskJet Printer • Hewlett-Packard introduced the DeskJet Printer in 1988 and it had become one of HP’s most successful products.

DeskJet Printer Supply Chain

Bill of Material for Deskjet Printer

Manufacturing Process • Printed Circuit Assembly and Test (PCAT) * ASIC’s (Application Spesific Integrated Circuits). * ROM (Read Only Memory) • FAT (Final Assembly and Test)

• The total factory cycle time through the PCAT and FAT stages was about a week. • Manufacturing of the deskjet printer operated in a pull mode.

The Distribution Process • Products from FAT sorted into three groups destined : US DC, Europe DC, and Asia DC. • The transportation time from Vancouver to the US DC in California => 1 day. • Long shipment time about 4-5 weeks to ship the printers to Europe and Asia => due to ocean transit and the time to clear customs and duties at port of entry.

The Distribution Process • Line item fill rate (LIFR) calculated as the total number of customer order line items filled on time divided by the total number of customer line items attempted. • Order fill rate (OFR) based on orders completed, where an order contains multiple line items.

Four Process Steps in DC

Receive (Complete) products from various suppliers and stock them

Pick the various products needed to fill a customer order

Shrink wrap the complete order and label it

Ship the order via the apropiate carrier

Problem Identification • Inventory growth had tracked sales growth closely. • The Organization in Europe was claiming that inventory levels there needed to be raised even further to maintain satisfactory product availability. • Two main issues: To find the best way to satisfy customer needs in terms of product availability while minimizing inventory. How to get agreement among the various parties that they had the right level of inventory

Problem Identification • Three major sources of uncertainty that coukd affect the supply chain:  Issue of internal process: Safety Stock Rules  Issue of demand uncertainties: Sample of Demand Data  Issue of delivery of incoming materials: Air Shipment vs Ordinary Shipment • What level of change the model would recommend?

Design Options for a Distribution Network • • • • • • •

Manufacturer Storage with Direct Shipping Manufacturer Storage with Direct Shipping and In-Transit Merge Distributor Storage with Carrier Delivery Distributor Storage with Last Mile Delivery Manufacturer or Distributor Storage with Consumer Pickup Retail Storage with Consumer Pickup Selecting a Distribution Network Design

Options • • • •

Redesign distribution network Recalculte Safety Stock & Improving forecast accuracy Setting up sister plant Using air shipment

Redesign Distribution Network • Previous Design

Supplier

Supplier

Supplier

Asia DC

IC Mfg

PCAT

Print Mechanism

FAT

Supplier

Europe DC

Far East DC

Redesign Distribution Network • New Design

Supplier

Supplier

US DC

IC Mfg

PCAT

FAT

Supplier Europe DC

Supplier

Print Mechanism

Supplier Far East DC

Supplier

Redesign Distribution Network Localization process performed in each DC except the US DC • Vancouver is not far from US DC so it is easy to face uncertain demand in US • Vancouver produce two type of printer, fully localized US option and generic product without manual and power supply module

Recalculate Safety Stock & Improving Forecast Accuracy • Create MRP and BOM explosion system to get better fill rate and lower inventory level. • Review actual inventory level and inventory in pipeline periodically (Monthly or weekly) to anticipate change in demand. • Create an integrate system that can be used by supplier so the supplier can do their own forecasting with better accuracy.

Setting Up Sister Plant in Europe • • • • •

High investment cost. Need long time to create new plant. Lead time can be reduced. Uncertain demand. Is the volume high enough to create new plant? Where the plant should be located?

Using Air Shipment • Reduce lead time • Very expensive cost

Proposed Solution Recalculate Safety Stock & Improving forecast accuracy  The root of the problem is bad forecasting system. By investing in to new sistem, HP can get better forecasting accuracy and lower inventory level Redesign Distribution Network Higher quantity can be shipped with same volume. Reducing high safety stock in each DC by keeping generic safety stock printers and customizing the printers as demand is realized in their area.

Lesson Learned • There are 3 major sources of uncertainty that could affect supply chain: 1. 2. 3.

Delivery of incoming materials (late shipment, wrong parts, etc) Internal process (process yield, machine downtime) Demand

• Distribution is a key driver of the overall profitability of a firm because it affects both the supply chain cost and the customer value directly. • Performance of a distribution network should be evaluated along to dimensions: 1. 2.

Customer needs (response time, product availability, etc) Cost

Refference • HP Co.: DeskJet Printer Supply Chain (A) Stanford Graduate School of Business Case # GS-3A

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